José Antonio García Belaunde
Representante CAF en Europa
This article wa also published in The Huffington Post.
The COVID-19 crisis has unexpectedly forced societies to confront their own weaknesses and inconsistencies, as if in a massive experiment, where the resilience of social models, the functioning of the economy and, in particular, the responsiveness and performance of our governments and public institutions are put to the test.
But furthermore, the absence of policy agreements to solve this crisis jointly and in coordination has once again exposed the fragility of the international system. This not only applies to the pandemic, as there are many challenges for the years to come, such as climate change or international security, which can only be solved through international cooperation.
The outlook is discouraging for the future of our economies, and while it is true that all countries have implemented unilateral measures to alleviate the first onslaught of the pandemic, multilateralism and effective cooperation mechanisms will undoubtedly be paramount to reconstruction further down the road.
Given that economic growth projections in Latin America are highly pessimistic for 2020, with average declines of 9% of GDP and a rise in unemployment, possibly to 13.5%, it becomes imperative to embrace the type of cooperation that fosters knowledge-sharing and creates new opportunities for external financing.
This situation, paradoxically, opens up new international scenarios. For example, CAF—development bank of Latin America—, one of the main regional development stakeholders, is launching a rapprochement strategy with several European countries to join the institution as extra-regional partners, and thus replicate the positive experiences of Spain and Portugal, members since 2002 and 2009, respectively.
As part of this strategy, we are in talks with Italy to push for an accession agreement as a shareholder in the bank. Great strides had been made in these negotiations back in 2007, but stalled due to a government change. We are also talking with the UK with the same purpose.
Another opportunity that arises in the midst of this complex international juncture is the emergence of new international funding channels and new ways to attract extra-regional funds to Latin America. In this regard, we are proposing the creation of a fund to finance infrastructure projects, for which we are inviting different European economies, as well as in Asia and North America, in an effort to channel international support and thus finance the development of key sectors for Latin America’s economic recovery.
The intended purpose of this fund is to issue debt in capital markets, backed by developed countries or their multilateral institutions, and have these funds invested in shareholder countries through loans that support their economic recovery by financing infrastructure and digitalization projects. CAF would be the arranger and fund administrator. Each project would be approved by the Board of Directors, which would be composed of ministers of finance and economy of shareholder countries. The financing scheme would be developed under pari-passu terms, and would cover all legal, environmental and social safeguards. We expect the Fund to be able to attract capital in the order of USD 30 billion.
These are just a few initiatives that can help preserve the social gains reaped at the start of the century, and also prevent the effects of the pandemic from ushering in a new lost decade for Latin America.
The current crisis represents an unprecedented opportunity to boost international cooperation in an innovative way and to reinforce the links between Latin America and Europe.
